The Experience Is on the House: The Shift from Points to Experience in Loyalty Programs

The best things in life are free, as the old saying goes, but for brands and retailers, one of the most precious commodities—customer loyalty—comes at a cost. Gone are the days when retailers could simply offer the lowest price or a rewards card to lure customers in the door and keep them there; now, brands will need to work harder to transform a customer into a repeat or loyal customer.

As such, major retailers are revamping their loyalty offerings to span beyond transactional incentives. From Walmart and Target to Sephora and Nordstrom, retail giants worldwide are trending toward individualized service, exclusive product access and other perks. The shift is driven by consumer demand: 73% of consumers view customer experience as a prime factor in purchasing decisions, according to data gathered by consulting group PWC.

Rather than narrow, points-based loyalty programs, Marissa Tarleton—CEO of international coupon company RetailMeNot—says that loyalty initiatives have transformed into a comprehensive business strategy to develop unique experiences that earn and keep customers.

The key to brand success, says David Clarke, global chief experience officer at PWC, is to bypass the singular notion of product or service and become a platform around which new communities can come together. This is accomplished in part by offering “soft features,” such as a bonus for return shoppers. For example, Nordstrom’s rewards program nets frequent shoppers early access to anniversary deals. Higher-level members can even attend holiday shopping parties and VIP store events.

Customers of Target with a REDcard enjoy insider privileges too, such as early access to new, Target-exclusive designer apparel. The REDcard combines experiential perks with substantial, but more typical reward benefits, like 5% back on all purchases, and free-two day shipping—a fusion that REDcard users reward with loyalty. Last year, REDcard shoppers spent $18 billion at Target and were responsible for 25% of Target’s total sales.

Also helpful for retailers is the purchase data recorded every time a customer swipes their store card. The information is stored and used to develop specific shopper profiles. Such insights let retailers create rewards and incentives tailored to each customer’s preferences, says Stephanie Waters, retail industry principal with SAP Hybris, a product management software developer.

Personalized service is the goal of Walmart’s Savings Catcher tool. It’s an app that scans receipts after Walmart customers make a purchase to check for better deals nearby. If a local competitor advertises an item for a lower price, Walmart awards a gift card for the difference.

Beauty retailer Sephora captures the essence of individual experience with its Makeup, Hair and Beauty app. The app allows users to virtually try on beauty products, and provides tutorials for applying them. It also awards special product promotions and select deals, based on Sephora shoppers’ purchase history.